A newly proposed federal regulation could flip the script for employers across the country that utilize independent contractors in day-to-day business. A proposed rule by the Department of Labor Wage and Hour Division was published on October 13, 2022. The proposal seeks revisions to the current legal analysis for determining whether a worker is an employee versus an independent contract under the Fair Labor Standards Act (FLSA or Act). If enacted, employers may find themselves subject to increasing liability and litigation over employee misclassification. Employers will need to pay close attention to the developments of the proposed regulation as the impact could influence the very foundation of employment law with some labor experts opining it could spell bankruptcy for certain companies that rely heavily on currently classified independent contractors.Fair Labor Standards ActThe Fair Labor Standards Act (FLSA) or 29 U.S.C. 202(a) was enacted in 1938 to eliminate the existence of labor conditions detrimental to the minimum standards of health, efficiency, and general well-being of workers. The FLSA brought about core aspects of today’s labor industry like requiring employers to pay at least the federal minimum wage for full time employees and at least half for overtime work, record maintenance on employees, and prohibition on retaliation on employees for pay inquiries or complaints to the U.S. Department of Labor. Many states, however, have set minimum wage amounts that exceed the current federal amount and have patterned state minimum wage and overtime laws after the FLSA.Employee vs Independent ContractorThe Internal Revenue Service defines an individual as an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done or how it will be done. While an employer must ensure they comply with FLSA standards regarding their employees, the protections

Congress enacted the FLSA “in order to eliminate ‘labor conditions detrimental to the maintenance of the minimum standard of living necessary for health, efficiency, and general well-being of workers.’ ” Antenor v. D & S Farms, 88 F.3d 925, 929 (11th Cir. 1996) (quoting 29 U.S.C. §202(a) & (b)). As such, 29 U.S.C. §207 requires that employers pay time and a half for those hours that an employee works in excess of the standard forty-hour work week.As simple as that statement may sound, the amount of litigation based on these words has increased significantly over the last fifteen years.

The Act seeks to prohibit “labor conditions detrimental to the maintenance of the minimum standard of living necessary for health, efficiency, and general well-being of workers.” 29 U.S.C. § 202(a). It does so in part by setting forth substantive wage, hour, and overtime standards.

The Court observed that both lower courts had found that the Foundation's businesses served the general public in competition with ordinary commercial enterprises, and that the payment of substandard wages would give the Foundation and similar organizations an advantage over their competitors. The Court noted that "it is exactly this kind of 'unfair method of competition' that the Act was intended to prevent, see 29 U.S.C. §202(a)(3), and the admixture of religious motivations does not alter a business' effect on commerce." 471 U.S. at 299.

The Court observed that both lower courts had found that the Foundation’s businesses served the general public in competition with ordinary commercial enterprises, and that the payment of substandard wages would give the Foundation and similar organizations an advantage over their competitors. The Court noted that “it is exactly this kind of ‘unfair method of competition’ that the Act was intended to prevent, see 29 U.S.C. §202(a)(3), and the admixture of religious motivations does not alter a business’ effect on commerce.” 471 U.S. at 299.